Question 1

Which of the following statements about the income and substitution effects of an income tax rate increase is true?

Accepted Answer

A)  The income and substitution effects are contradictory behavioral reactions. 
B)  From the government's perspective, the substitution effect is more desirable than the income effect. 
C)  Faith in the income effect is the foundation for supply-side economic theory. 
D)  Dynamic forecasts of incremental tax revenues must consider the potential income effect but not the potential substitution effect of a rate increase. 
A)  The income and substitution effects are contradictory behavioral reactions. 
B)  From the government's perspective, the substitution effect is more desirable than the income effect. 
C)  Faith in the income effect is the foundation for supply-side economic theory. 
D)  Dynamic forecasts of incremental tax revenues must consider the potential income effect but not the potential substitution effect of a rate increase.

Question 2

Which of the following statements concerning a regressive tax rate structure is true?

Accepted Answer

A)  A regressive tax rate structure is justified by the tax policy of distributive justice. 
B)  A regressive rate structure is justified by the theory of the declining marginal utility of income. 
C)  Under a regressive rate structure, the average tax rate for high-income taxpayers is less than the marginal tax rate. 
D)  None of the statements are true. 
A)  A regressive tax rate structure is justified by the tax policy of distributive justice. 
B)  A regressive rate structure is justified by the theory of the declining marginal utility of income. 
C)  Under a regressive rate structure, the average tax rate for high-income taxpayers is less than the marginal tax rate. 
D)  None of the statements are true.

Question 3

The U.S. individual income tax has always used a progressive rate structure.

Accepted Answer

A) True 
 B)False

Question 4

Changes in the tax law intended to make the measurement of taxable income more precise usually make the tax law less complex.

Accepted Answer

A) True 
 B)False

Question 5

Tax liability divided by taxable income equals marginal tax rate.

Accepted Answer

A) True 
 B)False

Question 6

A tax meets the standard of efficiency if it generates enough revenue to pay for the public goods and services provided by the government.

Accepted Answer

A) True 
 B)False

Question 7

Jurisdiction M imposes an individual income tax based on the following schedule. $\begin{array}{rr}
\text { Rate } & \text { Income bracket } \
58 & \$-0-\text { to } \$ 50,000 \
+88 & \$ 50,001 \text { to } \$ 200,000 \
+128 & \$ 200,001 \text { and above }
\end{array}$ Which of the following statements is true?

Accepted Answer

A)  The schedule provides no information as to whether Jurisdiction M's tax is horizontally equitable. 
B)  Jurisdiction M's tax is vertically equitable. 
C)  Jurisdiction M's tax is vertically equitable only for individuals with $50,000 or less taxable income. 
D)  Both "The schedule provides no information as to whether Jurisdiction M's tax is horizontally equitable" and "Jurisdiction M's tax is vertically equitable" are true. 
A)  The schedule provides no information as to whether Jurisdiction M's tax is horizontally equitable. 
B)  Jurisdiction M's tax is vertically equitable. 
C)  Jurisdiction M's tax is vertically equitable only for individuals with $50,000 or less taxable income. 
D)  Both "The schedule provides no information as to whether Jurisdiction M's tax is horizontally equitable" and "Jurisdiction M's tax is vertically equitable" are true.

Question 8

Which of the following statements about the income effect of an income tax rate increase is true?

Accepted Answer

A)  The income effect is theoretically stronger for low-income taxpayers than for high-income taxpayers. 
B)  The income effect is theoretically stronger for a family's secondary wage earner than for the family's primary wage earner. 
C)  The income effect motivates individuals to find ways to increase their before-tax income. 
D)  Both the income effect is theoretically stronger for low-income taxpayers than for high-income taxpayers and the income effect motivates individuals to find ways to increase their before-tax income are true. 
A)  The income effect is theoretically stronger for low-income taxpayers than for high-income taxpayers. 
B)  The income effect is theoretically stronger for a family's secondary wage earner than for the family's primary wage earner. 
C)  The income effect motivates individuals to find ways to increase their before-tax income. 
D)  Both the income effect is theoretically stronger for low-income taxpayers than for high-income taxpayers and the income effect motivates individuals to find ways to increase their before-tax income are true.

Question 9

Assume the state of California plans to amend its personal income tax laws to allow parents to reduce their tax by the cost of infant car seats. Which of the following statements is true?

Accepted Answer

A)  The amendment creates a tax preference for parents who purchase infant car seats. 
B)  The amendment is intended to change social behavior. 
C)  The amendment increases the neutrality of the tax law. 
D)  Both the amendment creates a tax preference for parents who purchase infant car seats and is also intended to change social behavior are true. 
A)  The amendment creates a tax preference for parents who purchase infant car seats. 
B)  The amendment is intended to change social behavior. 
C)  The amendment increases the neutrality of the tax law. 
D)  Both the amendment creates a tax preference for parents who purchase infant car seats and is also intended to change social behavior are true.

Question 10

Government J decides that it must increase its tax revenue. Which of the strategies could result in more revenue?

Accepted Answer

A)  Increase the rate of an existing tax. 
B)  Expand the base of an existing tax. 
C)  Enact a tax on a new base. 
D)  All of these strategies could result in more revenue for Government J. 
A)  Increase the rate of an existing tax. 
B)  Expand the base of an existing tax. 
C)  Enact a tax on a new base. 
D)  All of these strategies could result in more revenue for Government J.

Question 11

A convenient tax has low compliance costs for taxpayers and low collection and enforcement costs for the government.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following statements about a regressive tax rate structure is false?

Accepted Answer

A)  A regressive rate structure cannot result in vertical equity. 
B)  Regressive rates decrease as the tax base increases. 
C)  A regressive rate structure places a proportionally heavier tax burden on taxpayers with smaller tax bases than persons with greater tax bases. 
D)  None of these choices are false. 
A)  A regressive rate structure cannot result in vertical equity. 
B)  Regressive rates decrease as the tax base increases. 
C)  A regressive rate structure places a proportionally heavier tax burden on taxpayers with smaller tax bases than persons with greater tax bases. 
D)  None of these choices are false.

Question 13

Government L levies a 4% excise tax on restaurant meals. It is considering reducing the rate to 2% on meals served in restaurants that ban cigarette and cigar smoking and to increase the rate to 5% in restaurants that allow smoking. Which of the following statements is true?

Accepted Answer

A)  The rate change would improve the neutrality of the excise tax. 
B)  The rate change would improve the convenience of the tax. 
C)  The rate change is intended to affect social behavior. 
D)  Both the rate change would improve the convenience of the tax and the rate change is intended to affect social behavior are true. 
A)  The rate change would improve the neutrality of the excise tax. 
B)  The rate change would improve the convenience of the tax. 
C)  The rate change is intended to affect social behavior. 
D)  Both the rate change would improve the convenience of the tax and the rate change is intended to affect social behavior are true.

Question 14

Vertical equity focuses on measurement of the tax base, and horizontal equity focuses on the tax rate structure.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following statements concerning tax preferences is false?

Accepted Answer

A)  Tax preferences increase the complexity of the law. 
B)  Tax preferences raise additional revenue for the government. 
C)  Tax preferences are government subsidies for targeted taxpayer activities. 
D)  Tax preferences do not improve the accurate measurement of the tax base. 
A)  Tax preferences increase the complexity of the law. 
B)  Tax preferences raise additional revenue for the government. 
C)  Tax preferences are government subsidies for targeted taxpayer activities. 
D)  Tax preferences do not improve the accurate measurement of the tax base.

Question 16

Congress recently amended the tax law to make it easier for individuals to file their income tax returns electronically (online). Which of the following statements is true?

Accepted Answer

A)  The amendment is intended to improve the efficiency of the tax. 
B)  The amendment is intended to improve the equity of the tax. 
C)  The amendment is intended to improve the simplicity of the tax. 
D)  The amendment is intended to improve the convenience of the tax.
82) Mr. and Mrs. Boln earn $63,000 annual income and pay 20% in state and federal income tax. If tax rates increase so that the couple's annual rate increases to 25%, how much additional income must they earn to maintain their after-tax standard of living? 
A)  The amendment is intended to improve the efficiency of the tax. 
B)  The amendment is intended to improve the equity of the tax. 
C)  The amendment is intended to improve the simplicity of the tax. 
D)  The amendment is intended to improve the convenience of the tax.
82) Mr. and Mrs. Boln earn $63,000 annual income and pay 20% in state and federal income tax. If tax rates increase so that the couple's annual rate increases to 25%, how much additional income must they earn to maintain their after-tax standard of living?

Question 17

Which of the following statements about horizontal equity is false?

Accepted Answer

A)  Horizontal equity focuses on a rational and impartial measurement of the tax base. 
B)  Horizontal equity focuses on the measurement of taxpayers' ability to pay. 
C)  If persons with equal ability to pay a tax owe an equal amount of tax, the tax is horizontally equitable. 
D)  None of these choices are false. 
A)  Horizontal equity focuses on a rational and impartial measurement of the tax base. 
B)  Horizontal equity focuses on the measurement of taxpayers' ability to pay. 
C)  If persons with equal ability to pay a tax owe an equal amount of tax, the tax is horizontally equitable. 
D)  None of these choices are false.

Question 18

A static forecast of the incremental revenue from a tax rate increase presumes that:

Accepted Answer

A)  The tax base will not change because of the rate increase. 
B)  The tax base will increase by the same proportion as the rate increase. 
C)  The tax base will decrease by the same proportion as the rate increase. 
D)  The tax rate and the tax base are correlated. 
A)  The tax base will not change because of the rate increase. 
B)  The tax base will increase by the same proportion as the rate increase. 
C)  The tax base will decrease by the same proportion as the rate increase. 
D)  The tax rate and the tax base are correlated.

Question 19

State use taxes are more convenient for individual consumers than state sales taxes.

Accepted Answer

A) True 
 B)False

Question 20

The country of Valhalla levies an income tax with the following rate structure.
 $\begin{array}{rr}\text { Rate } & \text { Income bracket } \
58 & \$-0-\text { to } \$ 50,000 \
+108 & \$ 50,001 \text { to } \$ 150,000 \
+208 & \$ 150,001 \text { and above }
\end{array}$ Mrs. Greene's annual income is $125,000. Compute her tax, her average tax rate, and her marginal tax rate.Mr. Chen's annual income is $220,000. Compute his tax, his average tax rate, and his marginal tax rate.Does Valhalla have a proportionate, progressive, or regressive tax rate structure?

Accepted Answer

Mrs. Greene's tax is $10,000 = (5% × $50

Which of the following statements about the income and substitution effects of an income tax rate increase is true?

Which of the following statements concerning a regressive tax rate structure is true?

The U.S. individual income tax has always used a progressive rate structure.

Changes in the tax law intended to make the measurement of taxable income more precise usually make the tax law less complex.

Tax liability divided by taxable income equals marginal tax rate.

A tax meets the standard of efficiency if it generates enough revenue to pay for the public goods and services provided by the government.

Jurisdiction M imposes an individual income tax based on the following schedule. Rate Income bracket 58 \- 0- to \ 50,000 +88 \ 50,001 to \ 200,000 +128 \ 200,001 and above Which of the following statements is true?

Which of the following statements about the income effect of an income tax rate increase is true?

Assume the state of California plans to amend its personal income tax laws to allow parents to reduce their tax by the cost of infant car seats. Which of the following statements is true?

Government J decides that it must increase its tax revenue. Which of the strategies could result in more revenue?

A convenient tax has low compliance costs for taxpayers and low collection and enforcement costs for the government.

Which of the following statements about a regressive tax rate structure is false?

Government L levies a 4% excise tax on restaurant meals. It is considering reducing the rate to 2% on meals served in restaurants that ban cigarette and cigar smoking and to increase the rate to 5% in restaurants that allow smoking. Which of the following statements is true?

Vertical equity focuses on measurement of the tax base, and horizontal equity focuses on the tax rate structure.

Which of the following statements concerning tax preferences is false?

Congress recently amended the tax law to make it easier for individuals to file their income tax returns electronically (online). Which of the following statements is true?

Which of the following statements about horizontal equity is false?

A static forecast of the incremental revenue from a tax rate increase presumes that:

State use taxes are more convenient for individual consumers than state sales taxes.

Taxes and Taxing Jurisdictions

Taxes As Transaction Costs

Maxims of Income Tax Planning

Tax Research

Taxable Income From Business Operations

Property Acquisitions and Cost Recovery Deductions

Property Dispositions

Nontaxable Exchanges

Sole Proprietorships, Partnerships, Llcs, and S Corporations

The Corporate Taxpayer

The Choice of Business Entity

Jurisdictional Issues in Business Taxation

The Individual Tax Formula

Compensation and Retirement Planning

Investment and Personal Financial Planning

Tax Consequences of Personal Activities

The Tax Compliance Process

Filters

Exam 2: Policy Standards for a Good Tax

Which of the following statements about the income and substitution effects of an income tax rate increase is true?

Which of the following statements concerning a regressive tax rate structure is true?

The U.S. individual income tax has always used a progressive rate structure.

Changes in the tax law intended to make the measurement of taxable income more precise usually make the tax law less complex.

Tax liability divided by taxable income equals marginal tax rate.

A tax meets the standard of efficiency if it generates enough revenue to pay for the public goods and services provided by the government.

Jurisdiction M imposes an individual income tax based on the following schedule. Rate Income bracket 58 \- 0- to \ 50,000 +88 \ 50,001 to \ 200,000 +128 \ 200,001 and above Which of the following statements is true?

Which of the following statements about the income effect of an income tax rate increase is true?

Assume the state of California plans to amend its personal income tax laws to allow parents to reduce their tax by the cost of infant car seats. Which of the following statements is true?

Government J decides that it must increase its tax revenue. Which of the strategies could result in more revenue?

A convenient tax has low compliance costs for taxpayers and low collection and enforcement costs for the government.

Which of the following statements about a regressive tax rate structure is false?

Government L levies a 4% excise tax on restaurant meals. It is considering reducing the rate to 2% on meals served in restaurants that ban cigarette and cigar smoking and to increase the rate to 5% in restaurants that allow smoking. Which of the following statements is true?

Vertical equity focuses on measurement of the tax base, and horizontal equity focuses on the tax rate structure.

Which of the following statements concerning tax preferences is false?

Congress recently amended the tax law to make it easier for individuals to file their income tax returns electronically (online). Which of the following statements is true?

Which of the following statements about horizontal equity is false?

A static forecast of the incremental revenue from a tax rate increase presumes that:

State use taxes are more convenient for individual consumers than state sales taxes.

Taxes and Taxing Jurisdictions

Taxes As Transaction Costs

Maxims of Income Tax Planning

Tax Research

Taxable Income From Business Operations

Property Acquisitions and Cost Recovery Deductions

Property Dispositions

Nontaxable Exchanges

Sole Proprietorships, Partnerships, Llcs, and S Corporations

The Corporate Taxpayer

The Choice of Business Entity

Jurisdictional Issues in Business Taxation

The Individual Tax Formula

Compensation and Retirement Planning

Investment and Personal Financial Planning

Tax Consequences of Personal Activities

The Tax Compliance Process

Filters